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LEXINGTON INSURANCE COMPANY v. COMMONWEALTH PENNSYLVANIA (11/01/89)

decided: November 1, 1989.

LEXINGTON INSURANCE COMPANY, PETITIONER,
v.
COMMONWEALTH OF PENNSYLVANIA, INSURANCE DEPARTMENT; JAMES S. LEWIS; KRAMER CAPITAL CONSULTANTS, INC.; PAUL SWEENEY; SCOR REINSURANCE COMPANY; HUGH O'BRIEN; AND PAUL TYAHLA, RESPONDENTS



Original Jurisdiction.

COUNSEL

Scott T. Redman, Pittsburgh, for petitioner.

Thomas F. Halloran, Pittsburgh, for respondents, Kramer Capital Consultants Inc. and Paul Sweeney.

Greg T. Kinskey, Pittsburgh, for respondent, Scor Reinsurance Co.

Barry and Palladino, JJ., and Barbieri, Senior Judge.

Author: Barry

[ 138 Pa. Commw. Page 7]

OPINION

Before this court is a motion for judgment on the pleadings arising out of the liquidation of Northeastern Fire Insurance Company (Northeastern Fire). The motion was filed by the Commonwealth of Pennsylvania Insurance Department (Insurance Department); its Director of Liquidation, James S. Lewis; the appointed rehabilitators of Northeastern Fire, Kramer Consultants, Inc. and Paul Sweeney; and Northeastern Fire employees, Hugh O'Brien and Paul Tyahla.*fn1 This action was commenced by an original jurisdiction complaint filed by Lexington Insurance Company pursuant to 42 Pa.C.S. § 761(a)(3). Scor Reinsurance Company (Scor) is also a defendant in this action.

This court's opinion in Vickodil v. Commonwealth of Pennsylvania Insurance Department, 126 Pa. Commonwealth Ct. 390, 559 A.2d 1010 (1989), provides guidance in understanding the factual background of this factually related case. A $1.475 million judgment was obtained by a Mr. and Mrs. Vickodil against a tortfeasor arising out of an automobile accident tort claim. The chain of the tortfeasor's liability insurance was as follows: (1) Aetna Life and Casualty Company for liability up to $100,000; (2)

[ 138 Pa. Commw. Page 8]

Northeastern Fire, the primary excess insurer, for liability from $100,000 to $1,000,000, a percentage of which was reinsured by Scor pursuant to a contract between Scor and Northeastern Fire; and (3) Lexington Insurance Company, an additional excess insurer and the plaintiff in this action, for liability exceeding $1,000,000. During litigation of the Vickodil's negligence claim, Northeastern Fire was ordered into rehabilitation and later liquidation, pursuant to Article V of the Insurance Department Act of 1921, Act of May 17, 1921, P.L. 789, as amended, added by the Act of December 14, 1977, P.L. 280, as amended, 40 P.S. §§ 221.1-221.63. The Insurance Department supervised the rehabilitation and liquidation of Northeastern Fire under this court's direction.*fn2

Based on Northeastern Fire's rehabilitation and liquidation, the Vickodils were able to recover the statutory maximum from the Pennsylvania Insurance Guaranty Association ($299,900), Section 201(b)(1)(i) of The Pennsylvania Insurance Guaranty Association Act, Act of November 25, 1970, P.L. 716, as amended, 40 P.S. § 1701.201(b)(1)(i). An action was instituted by the Vickodils, however, to recover the amount of the overall judgment that the Vickodils were unable to collect based upon Northeastern Fire's rehabilitation and liquidation. The Vickodils alleged that the Commonwealth defendants violated fiduciary duties and engaged in bad faith and otherwise careless conduct. Specifically, the Vickodils alleged that, but for the Commonwealth defendants' conduct, the underlying tort claim would have been settled without trial for a lesser amount than the judgment or that the judgment would have been satisfied prior to liquidation.

In Vickodil, this court sustained a demurrer to the complaint holding that the duty owed under the statute was to minimize "financial harm to all policyholders, creditors and the general public". Vickodil, 126 Pa. Commonwealth Ct. at 396, 559 A.2d at 1013 (emphasis in original.) ...


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